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TMI Blog1986 (7) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The following questions of law have been referred by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur: " 1. Whether, on the facts and in the circumstances of the case, the assessee-trust was entitled to exemption from tax under section 11 read with section 2(15) of the Income-tax Act, 1961, as being a trust wholly for charitable purposes? 2. If the answer to question No. 1 be in the affirmative, then whether the income of the trust from hedging transactions was or was not exempt from tax as being de hors the trust deed ? 3. If the answer to question No. 1 and/or question No. 2 be in the negative, then whether the trust is entitled to deduction under section 80G of the Income-tax Act, 1961, in respect of donations made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (now section 80G) of the Act in the hands of the donors subject to limits and conditions prescribed in the said section. This order of the Commissioner helped the trust to collect more donations in order to augment its funds. After examining the various terms of the trust deed and other documentary evidence, the Income-tax Officer held that the trust fulfilled all the conditions laid down under the Act to qualify itself for exemption from income-tax. In March, 1968, the assessee received as donations from Shri Mahadeoji Loyalka 11,500 shares of Indian Iron and Steel Co. Ltd. which were taken in the books of the trust at their market value of Rs. 1,88,140 at Rs. 16.36 per share. A further donation of 3,500 shares of Indian Iron and Steel Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the assessee to show as to why the said transactions may not be taken as business transactions and it was further required to show cause as to why the entire income may not be subjected to tax. In response to the notices, one of the trustees certified that the profit in shares hedging account was only in the nature of income of the trust from transactions entered in the hedge contract against the trust's shareholding of Indian Iron and Steel Co. Ltd. to safeguard against any loss through price fluctuations and that the trustees never entered into purchase or sale transactions in any kind of shares during the respective years. The Income-tax Officer, in respect of all the assessment years, held that the hedging transactions entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. On the other hand, on behalf of the Department, it was submitted that the trust was not entitled to any exemption under section 11 (1)(a) of the Act due to its involvement in hedging transactions which were the activities carried on for profit within the meaning of section 2(15) of the Act. The Tribunal, after considering the contentions of the parties and scrutinising the terms of the trust deed, held that none of the items mentioned in clause 3 of the trust deed militates against the concept of charitable purpose. The Tribunal further observed that items No. 9, 10 and 11 of clause 3 speak only of acts useful to the public and by its very terms, falls within the definition. The Tribunal also took the view that when the object of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally allowed such exemption for the assessment year 1968-69. There can be no manner of doubt that the assessee-trust was entitled to be exempt from tax under section 11 read with section 2(15) of the Act as this was a trust wholly for " charitable purposes ". The question No. 1 is, therefore, answered in the affirmative and in favour of the assessee. As regards question No. 2, Mr. Surolia, learned counsel for the Revenue, in this regard, submitted that the objects of the trust did not permit the assessee to make hedging transactions and such transactions were de hors the trust deed. It was also submitted that the hedging transactions done in the present case by the assessee were with a motive of profit and the same being business transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on record that the charitable trust was not dealer in shares and securities but was merely an investor in shares. The hedging transactions were made to guard against the loss in the holding of shares on account of the price fluctuations in the shares. In our view, the Tribunal was right in holding that the transactions were entered into by the trustees with a view to guard against the loss in the holding of stocks and shares and such transactions cannot be termed as speculative transactions within the meaning of sub-section (5) of section 43 of the Act. We did not find any force in the argument of learned counsel for the Revenue that the transactions in share hedging constituted an activity which was not permitted by the trust deed. It m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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